CANADA

The burial of the NEP

ANDREW NIKIFORUK April 8 1985
CANADA

The burial of the NEP

ANDREW NIKIFORUK April 8 1985

The burial of the NEP

As Energy Minister Pat Carney stepped from the elevator on the mezzanine of Vancouver’s Four Seasons Hotel last week on her way to another tense round of negotiations with her opposite numbers from the three oil-producing western provinces, a crowd of journalists and photographers blocked her path. “If I could get to the negotiating room,” Carney said testily, “I’d be able to make a deal.” One hour later Carney did just that. She and the energy ministers from British Columbia, Alberta and Saskatchewan put the final touches on an agreement that ended six months of hard federal-provincial bargaining. The deal, which for the first time in 25 years will largely free the Canadian oil industry from federal government regulation, effectively spelled the end of the 1980 National Energy Program, raised the prospect of higher gasoline prices and promised to pour an estimated $800 million in revenues into oil company coffers this year.

The “Western Accord,” as Carney dubbed the agreement, was immediately hailed as a major victory by the western provinces.“They are not only off the porch, but off the property,” said Alberta’s energy minister, John Zaozirny, in direct reference to Premier Peter Lougheed’s famous 1980 critique of the NEP as an attempt by Ottawa to walk into Albertans’ homes. Oil industry officials were equally jubilant. Declared Hans Maciej, technical director of the Calgary-based Canadian Petroleum Association: “The government has redefined its role and has turned energy

back to the marketplace.”

The breakthrough in Ottawa’s protracted bargaining with the provinces came in Vancouver when Carney told her western counterparts: “I’ve spent two days resolving your problems. Now you can resolve mine.” Then she quietly left the hotel. With that, the western ministers agreed on a compromise proposal that became the basis for agreement. Back in Ottawa, Carney told the House of Commons that the agreement would end discrimination against the western oil-producing provinces and, by abolishing petroleum-related taxes which earned Ottawa about $3.4 billion a year, lead to the creation of hundreds of thousands of new jobs in the petroleum industry and related fields. But the deal will add about $1 billion to the federal deficit over the next two years. It also raised fears that Ottawa’s decision to surrender significant tax revenues could lead to a new tax on gasoline in Finance Minister Michael Wilson’s May 20 budget. And the agreement to lift export controls on oil—coupled with the decision to free oil prices from government controls on June 1—raised the prospect of increased sales of a declining Canadian resource to the United States at bargain prices.

Under the terms of the accord Ottawa will scrap a complex series of pricing regulations that developed after 1972, when the former Liberal government acted to insulate Canadian consumers from Middle East oil price increases. Instead, after June 1 Canadian oil prices will be allowed to respond to levels in the

international and U.S. markets, where there is currently a surplus of relatively inexpensive crude.

At the same time, the agreement honored an election promise by Prime Minister Brian Mulroney to phase out the controversial Petroleum and Gas Revenue Tax over 31/2 years, which the Trudeau goverment introduced five years ago with the NEP. TO partially offset the impact of lost PGRT revenues to the federal treasury, Ottawa next year will abolish the Petroleum Incentive Program, which the Trudeau government introduced under the NEP and which provided oil companies with $1.6 million in cash grants for oil exploration last year. Declared Carney: “What we are trying to do in this accord is treat the oil and gas industry as the proverbial engine of growth and not a milk cow for government revenues.”

In the Commons, opposition parties accused Carney of selling out to the oil industry. “The minister is a patsy for the oil industry,” charged the New Democratic Party’s energy critic, Ian Waddell. But Carney argued that the accord will stimulate new investment and exploration—and create new jobs—by permitting the stagnating oil industry to keep an additional $1.3 billion in revenues over the next 12 months. Under the accord, the oil-producing provinces agreed not to increase taxes and royalties to skim off the extra revenue. If the industry reinvests the extra money as Ottawa wants it to, the stimulus to the industry could create between 100,000 and 300,000 new jobs.

Even if world oil prices remain at relatively low levels over the next few years, some industry analysts say that petroleum companies will avoid lowering prices at the gasoline pump and passing on the savings to consumers. “The way the system seems to operate is that prices go only in one direction,” noted Bruce Willson, chairman of the energy committee of the Consumers Association of Canada.

Still, the biggest winner in the new deal may be Alberta, where 85 per cent of the nation’s oil is produced and where about half of the 400 oil rigs available in the province have been utilized at half their capacity for the past year. Under the new accord, noted Peter Grigg, president of the Canadian Association of Oilwell Drilling Contractors, “The industry should gain strength and become a viable industry again.” The new Conservative government would welcome such a development—although Carney vowed last week to make sure that foreign-owned companies reinvest in the nation that gave them a break from the NEP. -ANDREW NIKIFORUK, with Jane O'Hara in Vancouver, Terry Hargreaves in Ottawa and Suzanne Zwarun in Calgary.

ANDREW NIKIFORUK

Jane O'Hara

Terry Hargreaves